US Durable Goods Orders Surge in January

Orders for long-lasting factory goods rebounded this month after a December slump, signaling improvement for the struggling U.S. manufacturing sector.

Overall, new orders were up 4.9 percent in January, an improvement from the 4.6 percent decline in December, and above the 2.7 percent median estimate forecasted by economists on Bloomberg yesterday.

A solid start to the year in consumer spending combined with solid consumer confidence levels, likely drove the increase in consumer durables such as computers and autos. The manufacturing results will be encouraging for the labor market, and for wages in general, as increased activity spurs job growth.

Orders for core capital goods, a leading indicator of business investment spending, also rose by 3.9 percent, helping to allay concerns of a looming recession.

“It’s hard to remember the last time I saw a durable goods report that didn’t have any significant blemishes in it,” said Tom Simons, an economist at Jeffries LLC.

In the past few months, manufacturing companies have been struggling with the effects of the strong U.S. dollar and a weak global economy, hurting their ability to sell goods overseas.

The slowdown in China has prompted global contagion worries, according to Chad Moutray, Chief Economist for the National Association of Manufactures who said that U.S. manufactured goods exports fell from 1.40 trillion in 2014 to 1.32 trillion in 2015.

The materials and energy sectors are also big drivers of demand for capital goods and plunging crude oil and other natural resource prices are suppressing investment.

Despite the current climate, the numbers were strong across the board, led by a sharp 52.4 percent increase in commercial aircraft orders from this month versus last month.

Orders excluding transportation were also up by 1.8 percent, and higher than the 0.5 percent economists had expected.

“It’s so consistently strong across different categories, it leads me to believe it isn’t just luck,” said Simons.

Minor increases in oil prices and pent-up demand for investment in capital goods, following on from the decreases in November and December, helped to improve the figures, he said.

Not everyone saw the report as signaling an end to the manufacturing slowdown. The numbers are not expected to show consistency until oil prices improve. A sharp spike in growth in one month alone is not yet a true indication of robust economic growth.

Analyzed on a year-on-year basis, the report also has a less impressive 2.1 percent increase.

“It’s been a giant roller-coaster ride; a big down and now a big up,” said Stan Shipley, senior economist at Evercore ISI. “The economy is not going into recovery, but it’s not booming either.”

Though shipments of non-defense capital goods (excluding aircraft), used to calculate the gross domestic product, decreased by 0.4 this month, shipments overall were on the increase. Simons is expecting these results to have a positive effect on the GDP.

“It’s a good start,” said Simons. “It’s consistent with our view that we’ll get a pretty good number for quarter 1 GDP.”